Will OPEC’s efforts begin to impact oil prices?

Just a few years ago, the crude oil industry was booming, trading at over $100 per barrel. Nowadays, however, this seems like a distant memory as it struggles to stay above the $50 per barrel mark (having nearly fallen as low as $30 per barrel).

OPEC (The Organisation of the Petroleum Exporting Countries) exists to regulate oil production in its member countries in order to keep prices stable and limit oversupply. Are their regulations making a difference to the price of oil? Here are some considerations.

Supply and Demand

The main reason that oil prices are so low is that there is a glut in supply, meaning demand is lower by comparison. Since many countries are simply producing too much oil to keep prices high, regulation seems like an uphill struggle, as each country has its own agenda and economy to look after.

If oversupply continues, then it could be the case the oil prices continue to drop for the foreseeable future. Those investing in the commodity through methods like CFD trading will be looking out for significant market volatility and opportunities to buy it on the cheap if there is another crash (which seems like a real possibility).

Exemptions

It is worth noting that Libya and Nigeria are exempt from OPEC’s regulation, given that they need the commodity to develop and build their economies. There has been growing concern , however, that this is affecting global oil prices, and that oversupply may not be halted if they continue to produce so much oil.

There is ongoing conflict in these countries, which means they may not have reached maximum oil productions levels yet. As these conflicts die down, it could be the case that they begin to produce even more oil, which would potentially lead to a crash if not regulated.

American Shale

Another major factor which is seriously hampering OPEC’s efforts to curb oil production is the rise in US shale, which is significantly undermining the efforts of other countries to reduce oil output. Donald Trump has made it clear that he intends to focus on using fossil fuels for US energy production , meaning that a curb in oil production is unlikely any time soon.

OPEC will have a tough task persuading its member countries to cut their production when US shale will be ready to take their forsaken business.

Will Regulation Work?

Whilst OPEC regulations have clearly done much to ease and prevent gluts in the past, its current regulations seem to have been ineffective so far. Regulation of multiple countries is a difficult task, especially when other, non-member countries who pose a significant threat to curbing oversupply.

If regulation is not adhered to, however, there will almost certainly be a major crash in the near future. As of yet, it seems as though oil production will continue to be a major issue for all countries involved, and it remains to be seen whether OPEC’s repeated efforts begin to sink in, or whether oil producing countries choose to ignore the oversupply and forge ahead into dangerous territory.